The second hour of this week's Financial Sense Newshour podcast was devoted to an interview with Bob Prechter, the man behind the resuscitation of the Elliott Wave and noted deflationist. [.mp3 file] He returned to the deflation theme again, recommending that cash was the only safe investment for the times. He even recommended shying away from T-bonds. As for gold, he pointed to the fact that the gold stocks had not confirmed the new highs in gold itself; nor has silver. These non-confirmations, he pointed to as a reason why gold is vulnerable to a pullback.
Of course, Prechter has missed the gold bull market for most of it. He's been bearish on gold since about 2002. A note: he first broke into fame in the investment world by correctly predicting gold's top in 1980.
As a counterpoint, David Morgan in the third segment [.mp3 file] pointed out that one major gold stock, Newmont, has made an all-time high along with gold. He also noted that many investors prefer the pure play in bullion itself, leading to relative lack of demand for gold mining stocks. Jim Puplava pointed out that the gold stocks were squeezed a few years ago because of margin compression: the costs of inputs such as steel, oil and labour has gone up a fair bit too. Nowadays, that squeeze is absent. Morgan also said that the juniors are a place to find some great stocks, but only by being very selective. The only ones worth investing in are the lucky few that already show they'll eventually be mines.
Unfortunately, the best returns from that approach come when gold has been hammered and the stock market is in the doldrums. Late 2008 would have been the best time to get in to the best juniors. If there's any Warren Buffet principle that's transferrable to gold exploratrion juniors, it would be: buy the companies with the best projects when the market's fear-ridden and distressed. (Buffett got into the Washington Post in 1974.) Should gold collapse by 40%, as Precher recently forecast, and the stock market collapse too, as he also said, there would be another huge buying opportunity for the few juniors that have huge deposits. The market for them now, sad to say, is them having a market cap that's close to what it would be had they been producing already.